Bill Gross Leaves Pimco: The Bond King Plays His Own Game of Thrones

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No, it’s not a joke. Bill Gross truly is leaving Pimco, the company he founded and built into one of the world’s single largest investment powerhouses. His destination: Janus, the Denver-based investment manager.

It’s like Warren Buffett deciding to abandon Berkshire Hathaway and run a start up soft drink business (after all, he knows Coca-Cola and the industry). Or Facebook’s Mark Zuckerberg deciding that rather than steer the company he founded through whatever bumpy patches lie ahead of it, he’ll resign and join a rival startup social networking company. Or even Jeff Bezos walking away from Amazon.com to devote his time to space engineering.

That said, it would fit with Gross’s recent behavior, which has been erratic enough to become the focus of a major Wall Street Journal article. Gross doesn’t like trading-floor employees speaking to him unless invited to do so, or making eye contact; he chastises anyone who forgets to number the pages in their presentations. At one point, the paper reported, he even compared himself to a legendary racehorse. “I could run all the $2 trillion myself…I'm Secretariat,” he said in front of his traders.

The rumor was that Gross’s behavior — even his monthly investor letters have become increasingly unusual in tone — had become too much for Pimco, now a solidly institutional firm owned by German financial services giant Allianz, to tolerate. Had Gross’s performance been astonishingly good, they might have winced and tolerated the eccentricities. But it wasn’t, and redemptions in the flagship Total Return Fund have totaled nearly $70 billion since May 2013.

The last straw may have been an SEC probe into the management of Pimco’s exchange-traded funds, which became public earlier this week. Regulators are investigating whether Pimco bought bonds at a discount and then reported the prices in such a way as to make it appear to investors as if the fund’s performance had actually been better than it was.

The odds certainly favored Gross’s departure from the firm, one way or another. But why should any of us have expected someone who has reshaped the world of fixed income investing and become such a dominant player in it to sit back meekly and wait passively to see what happens next? That wouldn’t have been Gross-like at all.

And so the Bond King seized the initiative. Rather than waiting to be pushed, he jumped. Janus’s announcement not only caught Wall Street by surprise, but Pimco, too. Gross appears to have submitted his resignation at almost exactly the same time the release hit the wires.

Still, it’s an odd move, by any standards. Pimco with Gross at the helm oversaw $1.97 trillion (yes, trillion) in assets. Janus has always been more focused on stocks than fixed income: Of its $177.7 billion in assets, a mere $31.4 billion are invested in the company’s bond funds. Remember, investors have withdrawn double that sum from Gross’s flagship Pimco Total Return fund over the last 16 months, since its performance began to flag.

Of course, moving to Janus ensures that Bill Gross will remain a very, very big fish. It’s just that the size of the pool he’s now swimming in has shrunk — dramatically — in size, and even, perhaps, in quality. Janus’s press release lauded the accomplishments not only of Gross but also of its own chief investment officer of credit, Gibson Smith. And Janus’s roster of funds does include some standouts: its Flexible Bond Fund gets high marks from Morningstar, as do its high yield and short-term bond offerings. Other funds? Meh; not so great. And Smith hasn’t made a big name for himself among bond market investors more broadly, perhaps because he’s working within such a solidly equity-dominated shop.

This could end up as a win/win situation for all concerned. Pimco gets to emerge from Gross’s shadow (and Mohamed El-Erian may finally be able to put to rest his own market-moving decision to leave Pimco early this year.) Janus – whose shares climbed on news that Gross had decided to join the firm – gets a big boost to its visibility and, in particular, to the image of those fixed-income funds that have been toiling in the shadow of their larger and better-known stock counterparts.

Gross will take the helm of one of the smallest and least known funds, the Janus Unconstrained Bond Fund, and run it from a new Janus office in his old stomping grounds of Newport Beach, Calif. The fund has a measly $12.9 million in assets (compared to the $220 billion PIMCO Total Return Fund) and is too young to have earned a Morningstar rating as yet. Gross will also work on developing global asset allocation strategies for Janus.

As retirement homes go, it’s an unusual one. But then, the 70-year-old Bond King isn’t a “usual” kind of guy.

Business journalist Suzanne McGee spent more than 13 years at The Wall Street Journal before turning to freelance writing. Author of the book Chasing Goldman Sachs, she has written for Barron’s, The Financial Times, and Institutional Investor.